United Airlines has been under fire since Sunday when a video of a man being forcibly removed, from an United airplane went viral. The man, a doctor, was selected to give up his spot for United employees who needed a seat to work a future flight. When he refused, security officials physically wrestled the screaming man out of his seat and dragged him down the aisle by his arms. His face was bloodied and he seemed dazed.
The ensuing reactions from the public and the vapid and unapologetic response of Munoz, the United Airlines CEO, have since become a PR nightmare for the airline. As a result of the incident, the stock dropped immediately and its value floundered for several days as United attempted to find a way through the mess.
As the largest shareholder of United Airlines, Warren Buffett has been strangely silent on the whole incident. At the time of writing, Buffett owns around 9.2% of the company. As a direct result of the passenger removal scandal and the national and international reactions to the viral video, United’s stock prices dipped sharply immediately after, costing Buffett somewhere in the ballpark of $58.5 million.
Of course, the stock market is nothing if not fickle and even as recent as yesterday, the stock prices had begun to creep back up again, implying that the dip was more of a hiccup than a permanent value drop. Only time will tell whether the public outcry to boycott the company will have any impact or not.
Regardless, this incident brings to light a main failing of airlines which has long kept Buffett out of the market: the volatility of the business. Buffett has been quoted many times in the past saying that airlines are a terrible investment because of their cyclical nature, low returns, and high costs.
However, as we reported late last year, Buffett decided to go ahead and take another shot at owning airlines. At the time of writing, he has significant stock in all four of the major airlines, and he told CNBC in February that he thought that the industry was looking up.
“It’s true that the airlines had a bad 20th century. They’re like the Chicago Cubs. And they got that bad century out of the way, I hope,” Buffett said to CNBC reporters. “The hope is they will keep orders in reasonable relationship to potential demand.”
So far, it doesn’t look like Buffett has been right about airlines. Putting this incident aside, the value of United Airlines has dropped 3% already this year, and the current PR disaster does not bode good things.
However, despite all of this, there hasn’t been any comment from Warren Buffett on the whole incident. As a long term investor, it’s possible Buffett is simply waiting out the storm in the hopes that the price will rise and he can break even. Or maybe he still thinks the industry is a solid one despite the mistakes (after all, he did stick by Wells Fargo during its big scandal). Be sure to check back, as we’ll cover any response Buffett makes.